the assumptions are wrong. That’s a spiral that many companies never get out of. It’s very much the Steve Blank or Eric Ries methodology; the point is to validate that the assumptions are correct before you spend a lot of money.
Layered on top of that, we had a fundamental belief in design—the big D, Ideo kind of design. Most companies are average, by definition, which means you get caught in the muck and you don’t do anything that makes you break through. When we started we brought in great designers from Ideo and Frog Design and did case studies and so forth. That’s what led us to bring in David [Merkoski] in January. He had run the West Coast for Frog Design and ran their energy practice and had 150 designers reporting to him, and was tired of working with bigger companies and wanted to work on energy challenges. So he came on board, which enabled us to do the UX work, product design, service design, and experience design work that he was previously charging $1,000 an hour for at Fortune 500 companies.
Storytelling and branding was another thing we had worked on a lot with companies. You run into this all the time—most companies are very average. Most startup founders are so caught up in something that makes sense to them in their head that it’s really hard to deliver a compelling message to a different audience, whether it’s a journalist or an investor or somebody they’re trying to recruit. If they don’t get that right, they are much less likely to get everything else right.
The fourth area is around capital, which is partly fundraising, but it’s also the step before fundraising, which is figuring out how much money you need. A lot of entrepreneurs are like, “Well, I don’t need any money,” and others are saying “I’m going to raise $25 million in my first round.” Probably not, but let’s build a financial model and stress-test that. Different pricing models would change how much you need. We work through that with them and the output is that if you want a year of runway you need X amount of dollars, and then you’ll be ready for either a seed round or a Series A. Then we get into, let’s help you connect with your investors and help you with pitch day.
Those four things are the goals we have for any company that goes through Greenstart. We help them design and validate a business model that can scale. We help them design a product or service that customers will rave about, so that customers become their marketers. We help them tell crisp, powerful stories to investors, customers, and employees. And we make sure they raise the right amount of money from the right investors.
X: A lot of that sounds like Accelerator 101. What’s so different about this methodology that it’s worth trademarking?
ML: The difference is that at other accelerators, it’s advice that they give, and here, we’re actually doing it with them. We have designers doing product designs and schemas and wireframes and prototypes. We are going out and talking to customers with you. It’s not just us saying, “This is important, you should figure it out.” It’s us doing it with you. It’s the difference between an advisory relationship and a co-creator relationship.
X: It all sounds very labor-intensive, and not very scalable. Is that why you only bring in four or five companies per batch at Greenstart, compared to 74 this summer at Y Combinator?
ML: That’s exactly it. We’re looking to do fewer investments and get much more hands-on. I think we will end up doing 12 or 15 investments a year, and growing into that naturally. We’re selective, it’s hard to get in, and we are joining your team. So you’re right, it doesn’t scale. When all you’re doing is having a mentor there on Tuesday and Thursday nights it doesn’t matter if you have 80 companies. But if you’re part of the team, it totally limits how any companies you can do that for.
X: Speaking of Y Combinator, every company admitted there gets an option to take a $150,000 convertible note from Start Fund, on top of the stipend from YC itself. Starting with the last batch, you also upped the ante on the investment you can make, right?
LM: Yes, we announced that we were going to create this additional fund, and we closed that. So there are two distinct pieces. Greenstart makes a direct, $15,000 investment, and we also manage a fund where we can make another $100,000 investment.
X: Did you do that to compete with YC and the other accelerators?
LM: I don’t think we’re seeing a ton of overlap in terms of applications with those guys. But we certainly saw what they did, and saw that it solved it very obvious problem. If you raise $15,000 or $20,000, that’s nice, but typically what it means is that during the three months [of the program] you are out trying to fundraise. We wanted to remove that distraction. If you don’t have to worry about money for three or four months, that gives you the breathing room to focus on building the business.
